In a recent report, the United Nations (UN) has predicted a sharper slowdown in the global economy this year. The UN attributes this downturn to the significant increase in interest rates implemented by leading central banks in the last two years, which have weakened investment spending.
According to the UN’s biannual global economic outlook report, world economic output is projected to grow by 2.4% in 2024, marking a slowdown from the 2.7% expansion seen in 2023. This new forecast is lower than the 2.5% growth estimated by the UN in May and falls significantly below the pre-pandemic average of 3%.
The report also highlights that while inflation rates are expected to ease globally, interest rates will remain high. This situation may potentially increase the cost of repaying debts for developing countries, exacerbating the ongoing debt crisis.
Secretary-General of the UN, Antonio Guterres, expressed concerns about the persistently sluggish global growth, emphasizing weak investment and the continuous spiral of the debt crisis.
In summary, the UN’s latest analysis suggests that the global economy is heading for a further slowdown, with challenges such as weak investment and escalating debt service obligations likely to persist.
Global Economic Growth Exceeds Expectations in 2023
The global economy experienced stronger growth in 2023 than anticipated by the UN and other forecasters. This surprising development can be mainly attributed to the resilience of consumer spending in the United States, despite increasing borrowing costs. However, the UN predicts that U.S. growth will decelerate to 1.4% this year, down from 2.5% in 2023, which is still a more favorable outcome compared to the initial projection of 1% expansion in May. Furthermore, China, the second-largest economy in the world, is also expected to face a slowdown.
Eurozone Economic Growth Set to Recover
In contrast to the previous year, the UN anticipates an uptick in eurozone economic growth following an unexpectedly sharp deceleration in 2023.
Developing Economies Face Challenges
Although many developing economies in Africa and other regions are projected to experience improved growth in 2024, the UN highlights that they will still fall significantly short of pre-pandemic activity levels. According to the UN’s economists, the world’s poorest countries have suffered a loss of growth amounting to 30% of their pre-pandemic GDP by 2023, whereas the wealthiest economies have only experienced a decline of 10%.
Global Inflation on a Decline
The UN expects global inflation to moderate further after reaching a three-decade peak in 2022. It forecasts inflation to settle at 3.9% in 2024, down from 5.7% in 2023.
Central Banks Unlikely to Lower Interest Rates
Despite the projected decline in inflation, the UN suggests that major central banks are unlikely to implement early interest rate cuts due to robust job markets in affluent countries.
Rising Wage Growth Signals Inflation Risk
The United Nations (UN) has highlighted the potential risks of rising nominal wage growth. This development has caused central banks to be cautious about ending their tightening cycle and shifting towards monetary easing.
The UN’s findings indicate that the escalation in wage growth may lead to second-round effects, resulting in sustained inflationary pressures. Given this concern, central banks are hesitant to implement measures for monetary easing.